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You can contact the author (Teguh Hidayat) by email, teguh.idx@gmail.com. The author live in Jakarta, Indonesia.

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Prospect of Blue Bird's IPO

Soon, we’ll have another famous company in our
stock trading floor. PT Blue Bird, Tbk., and that’s all of the company’s name,
is the largest taxi company in Indonesia, as well as the most prominent in its
industry, so it was no wonder if the news of the IPO has triggered investor’s
curiosity. However, like any other ‘well-known goods’, the shares ain’t sold at
low prices, but between Rp7,200 – 9,300 per share, where the nominal value of
the shares is only Rp100 per share. The question is, of course, is it worth?

When I said that Blue Bird is the largest taxi company
in Indonesia, I meant like.. it is really big. In 2013, Blue Bird had 33% of market
share of taxi business in Indonesia, or 2.3 times larger than the market share
of PT Express Transindo Utama, Tbk (TAXI) as the second largest taxi company,
with a number of fleets that was larger than the total number of fleets of five
other largest taxi companies as a whole (including TAXI earlier). Blue Bird’s
domination in taxi business in Indonesia is driven by the fact that the industry
has a high barrier to entry for new players to receive permits (to operate
taxi) from local governments. The management of Blue Bird itself states that
its greatest risk in running the business was the possibility that the district/city
government revoke its operational permits, so the company cannot longer operate
in the area. Luckily, as the most established taxi company in the nation, this
condition in fact protected Blue Bird from potential competitors.

And maybe because the company controlling most
of the taxi industry, while the industry itself had progressive developments in
the last four years (the overall revenue of taxi business in 2009 was Rp4.1
trillion, which increased to Rp8.2 trillion in 2013), then the financial
performance of Blue Bird, at a glance, seems satisfactory. In 2013, Blue Bird
had net profit of Rp713 billion, which reflects ROE of 59%. The book value of
the company is also continue to increase, from Rp207 billion in 2007, to Rp1.5
trillion in April 30, 2014.

However, you may probably underline the word ‘at
a glance’ above. Blue Bird, like most of companies in the field of land
transportation, has a very huge debt in its balance sheet. From Rp5.5 trillion
of total assets of the company in April 30, 2014, Rp4.0 trillion of which were
liabilities, including Rp2.7 trillion of bank loans. This condition causes the
company's earnings to be highly vulnerable to fluctuations in the interest rate
of the loan. The earning also vulnerable to fluctuations in the exchange rate
of Rupiah against the US dollar, because some of the taxi fleets must be purchased
through imports. As a result, as it was predictable, although the net equity
rose steadily each year, but Blue Bird’s net profit growth tends to be less
consistent. In 2010, the company's profit jumped to Rp405 billion (from the
previous Rp77 billion), but fell to Rp389 billion in 2011, before rose back to
Rp440 billion in 2012. The point is, although Blue Bird’s profit in 2013 was
jumped compared to 2012, but there is no guarantee that in 2014 or 2015, the
leap would continues. If at any time later the profit would down, so would the
stock.

Other factors outside of loan interests and
foreign exchange rates, which can erode Blue Bird’s profit at any time, is if
the company fails to rejuvenate its fleets. As a taxi company, Blue Bird is required
to regularly rejuvenate its fleet every year, where the company can sell its
outdated cars, then buy the brand new ones, just like Adi Sarana Armada (ASSA)
does. So far, Blue Bird always make sizable profits from the sale of used taxi,
but the value of the profits is also very volatile, whereby if the value goes
down then so did the company's overall net income.

And because of large debts, then the net profit of
Blue Bird is not as big as it seems, because its ROA (return on assets) was only
14%.

Litigations

One more thing that makes me uncomfortable with
Blue Bird is, currently the company is snagged by some legal issues. On May 17,
2013, a woman named Ms. Mintarsih Latif, who was a sister of the CEO of Blue
Bird, Mr Purnomo Mangkusudjono, sued his own brother for allegedly taking
control of the assets of PT Blue Bird Taxi (BBT), an affiliate of Blue Bird,
where Ms. Mintarsih is director of BBT. I think this is likely to the issue of
inheritance disputes, because Mrs. Mintarsih not only suing Mr. Purnomo, but
also other siblings, where they are all (including Ms Mintarsih herself) the
children of the late Chandra Suharto, founder of the Blue Bird Group.

This dispute has still not been finished until today.
On April 4, 2014, the famous lawyer OC
Kaligis, filed a lawsuit on behalf of himself against Mrs. Mintarsih, Mr.
Purnomo, and other senior figures in the Blue Bird Group, with a lawsuit value
of Rp2.2 trillion! OC Kaligis, previously a lawyer of Ms. Mintarsih when she
sued her brothers, said that he had lost revenue because Ms Mintarsih unilaterally
cut off his contract as a legal advisor. So the dispute is now no longer
between Ms Mintarsih against her brothers, but an outsider (Mr. OC Kaligis)
against the children of the late Chandra Suharto.

If that was not enough, then on June 2, 2014,
two women named Mrs. Lani Wibowo and Mrs. Elliana Wibowo, both are sisters of Mr.
Gunawan Surjo Wibowo, the commissioner of Blue Bird, also sued the company with
a lawsuit worth Rp652 billion. Well, like many other disputes that involving
the members of the same family, I think it would take a loooong time to be settled.
Although the management claims that the disputes will not interfere with the operation
of the company, but as one of shareholders, of course I would worry. How could
the company run smoothly if the owners are busy fighting each others?

Interestingly, if you search in Google, there
are only few reports/news related to the theses legal cases. Looks like the underwriters
of the IPO, ie Credit Suisse Securities, Danareksa, and UBS Securities has successfully
silencing the media. Because if the litigations are reported to the general public,
then the IPO would be a failure. It also reminds me when Garuda Indonesia (GIAA) held an IPO, which the IPO was promoted
heavily through the media, while, in spite of the great names of Garuda
Indonesia, the financial performance of the company was poor.

In conclusion, beyond the famous name of the company
and the bright prospects of the taxi business itself, but the fact is that the
investment in Blue Bird is somewhat risky, and it's not even considering the
valuation of the shares yet, which is, at a glance, expensive.

Here are some other important facts related to
the investment in Blue Bird:

In 2012, the
company restructured the ownership of its subsidiaries, so there are some
businesses that are no longer consolidated as a subsidiary of PT Blue Bird,
and the composition of shareholders of PT Blue Bird itself was also changed.
This restructuring later led to disputes among fellow shareholders at the
Blue Bird Group, as already discussed above.

Outside operating the
cab, Blue Bird (after restructuring) also runs the business of executive cab
('Silver Bird'), limousine rental ('Golden Bird'), and bus rental ('Big
Bird'). Until the end of April 2014, all the three 'birds' contributed
revenue of Rp280 billion, or only 19% of the company's overall revenue, so
the presence of the three birds are not significant. In Jakarta, you will often
see the Silver Bird taxi passing by, but you cannot see them in other cities.
Meanwhile, another 'bird' that is not consolidated into the Blue Bird (not
considered a subsidiary) is 'Iron Bird', a logistics service provider.

Danareksa, one of
the underwriters of Blue Bird, had a bad track record related to the IPO of
Krakatau Steel (KRAS), and
Garuda Indonesia (GIAA), where KRAS shares sold at a price that was too
low (in spite of the fact that the shares are now dropped due to its bad
financial performance), while GIAA shares sold at a price that is too
expensive that it did not sell, so Danareksa had to buy the unsold stock.
Luckily, there was Chairul Tanjung
(CT) who comes as a savior, who bought the shares at a price of Rp680
per share, injecting funds of Rp1.3
trillion (about US$ 110 million) to Danareksa et al. If not because of
the presence of CT, the brokerage firm could be completely bankrupt.

Frankly, after arriving in this section, I was
no longer interested to continue the writing, because I personally will not buy
the shares of Blue Bird. Anyway, if it was mentioned that Blue Bird's share is
expensive, then you may ask, how could you said that? And here we go!

Shares of Blue Bird, as mentioned above, will be
sold at a price range of Rp7,200 – 9.300 per share. Because the number of
shares sold was 531.4 million shares (which reflects 20% of the total outstanding
shares post the IPO), the company will reap cash of between Rp3.8 - 4.9
trillion... that’s officially huge! Sooo, let me get this straight: For a company
with a book value of Rp1.5 trillion only, without track record of consistent
performance, have a mountain of debt (including the portion of the IPO proceeds
will be used for pay some loan), and the management is busy fighting each other
instead of manage the company, I want to say: Are you nuts??? I think if the stock of Blue Bird is not to end up
like GIAA which crashed at its first trading day, then that's already a great
news (for the underwriters). Okay, Blue Bird is a famous company, but of course
it is not enough to be a reason to sell the shares at exorbitant prices. And in
fact, Sido Muncul (SIDO) is also a
big name, with the fundamentals that were much better than Blue Bird. However,
because from the beginning the price was very expensive (sold at Rp580 per
share), so even though it had gained for a moment (reached Rp900’s per share), but
later the stock tumbled back to Rp600’s per share.

Now, let's count the Blue Bird’s valuation. If
the shares are released at the lowest prices, ie Rp7,200 per share, then the
equity value of the company will be Rp1.5 + 3.8 trillion, aka Rp5.3 trillion. The number of shares
after the IPO will be 2.7 billion shares,
so Blue Bird’s market cap Blue Bird (at the price of 7,200) was Rp19.1 trillion. So its PBV = 19.1
trillion / 5.3 trillion, equal to 3.6
times. Some analyst might assume that this valuation is fair, because the
company's ROE, as already mentioned above, reaches 59%, or very high, not to
mention considering the good reputation of the company. But, well, if we
consider the various factors that we have discussed here, then you know that
you are unlikely to pay up to Rp36 million to acquire a part of Blue Bird’s net
assets that worth Rp10 million, especially if the assets are not good and are
also in trouble.

Then will the stock be dropped when it is
listing on 3 November? Well, of course not necessarily. Like when Rajawali
Group entered into BW Plantation, Blue Bird also has a MESOP program (management
and employee stock option program), where employees has an option to purchase the
company stock at a price which is usually higher than the IPO price. To make
these employees execute their stock option, the share price of Blue Bird in the
market should be maintained at an above price.

But yeah, if you buy the stock based on a ‘stock
making’ analysis like that, then it's closer to speculation than investment. I
like to invest in stocks that I can sleep with. However, if I take the Blue
Bird’s stock, then I would be like the company’s taxi driver, who had to stay
up until midnight in the pursuit of passengers. And frankly, I do not like that
kind of lifestyle.